Requesting a Debt-Installment Arrangement in the Philippines

A comprehensive legal and practical guide (2025 edition)

1. Concept and Purpose

A debt-installment (or “payment-by-installment”) arrangement is an agreement—normally in writing—between a debtor and a creditor that restructures an existing monetary obligation into smaller, scheduled payments. It is not a new loan; it is a novation or amendment of the original contract, often coupled with partial condonation of penalties, interest-rate reduction, or an extension of maturity.

2. Core Legal Foundations

Source of Law	Key Provisions & Their Relevance
Civil Code of the Philippines (Arts. 1159, 1179, 1305-1318, 1291, 1370-1372)	Freedom to contract, amendments/novation, obligations must be complied with in good faith, interpretation rules.
Central Bank Circular 905 (1982) & Bangko Sentral ng Pilipinas (BSP) Circular 799 (2013)	Usury law suspension & current 6 % per-annum legal interest benchmark for forbearance of money.
Financial Rehabilitation and Insolvency Act of 2010 (FRIA, R.A. 10142)	Court-supervised or out-of-court restructuring for corporations/partnerships and suspension-of-payments petitions for individuals.
Barangay Justice System (secs. 399-422, LGC 1991)	Mandatory conciliation for disputes ≤ PHP 400,000 among residents; often used to broker informal installment settlements.
Alternative Dispute Resolution (ADR) Act, R.A. 9285	Encourages mediation/conciliation before resorting to litigation; settlement agreements are enforceable as arbitral awards.
Consumer Act (R.A. 7394) & BSP Consumer Protection Framework	Require banks/financiers to handle restructuring proposals fairly and transparently.
National Internal Revenue Code § 204 & BIR Revenue Regs. 30-2002	Authorize the BIR to accept Installment Payment Agreements (IPAs) for tax deficiencies.
R.A. 9510 (Credit Information System Act)	All restructurings must be reported to Credit Information Corporation; affects borrower score.

3. When and Who May Request

Scenario	Typical Timing	Eligible Debtors
Pre-default	Anticipated cash-flow crunch; no missed due dates yet.	Any individual or entity.
Post-default but pre-litigation	Accounts past due, collection calls received.	Any individual/entity, but terms may be less favorable.
During litigation or after judgment	A compromise agreement can stop execution.	Debtor-defendant.
Insolvency or Rehabilitation	Cash-flow insolvency or balance-sheet insolvency.	Corporations (rehab plan) & individuals (suspension-of-payments).

4. Debts Commonly Restructured

Consumer loans (credit cards, personal loans, auto loans)
Housing loans (Pag-IBIG, SSS, banks)
Utility arrears (electric, water, telco)
Government agency loans (GSIS, SSS salary loans)
Tax deficiencies and local-tax assessments
Court judgments for sum of money

5. Practical Step-by-Step Process

Audit the Debt Gather the promissory note, statement of account, and compute principal, contractual interest, penalties & other charges.
Assess Capacity & Draft a Proposal Prepare a cash-flow statement justifying the amount you can comfortably pay per installment.
Write a Formal Request Letter
- Address to the creditor’s Account Management/Collections unit.
- Include: (a) account details; (b) cause of payment difficulty (illness, retrenchment, force majeure, etc.); (c) proposed schedule; (d) undertakings (e.g., post-dated checks, automatic debit, mortgaged security).
Submit Supporting Documents Payslips, bank statements, business permits, audited FS, sworn SALN or ITR, as applicable.
Negotiate Terms
- Tenor: typical 3–60 months.
- Interest: fixed rate or declining-balance; may be reduced or even frozen.
- Penalty Waiver: often conditional on perfect future payments.
- Security: real estate or chattel mortgage, surety, or co-maker.
Execute the Restructuring Agreement Have it notarized; keep originals; furnish each party.
Notify Guarantors & Update CIC Lenders must report the new status within 30 days under R.A. 9510.
Comply & Monitor Ask for updated ledgers every few months; keep official receipts.

6. Formal Legal Pathways (When Negotiation Fails)

Mechanism	Who May File	Court / Agency	Key Milestones
Suspension of Payments (Individuals) under FRIA Ch. IV	Natural persons with > PHP 500 k debts	Regional Trial Court	Verified petition → order admitting → meeting of creditors → court-approved payment plan (requires 2/3 vote in amount & 3/5 in number).
Voluntary or Court-Supervised Rehabilitation (Corporations/Partnerships)	Debtor, creditors, or SEC	RTC Special Comm.	Filing → stay order → rehabilitation receiver → plan voting → confirmation.
Out-of-Court Rehabilitation (OCRA)	Debtor + ≥ 67 % secured + 75 % unsecured creditor consent	SEC-monitored	Master restructuring agreement becomes binding.
Barangay or DTI Mediation	Residents / MSMEs	Punong Barangay / DTI Mediation Center	Written settlement attested by Lupon or mediator; enforceable as compromise judgment.

7. Special Government Installment Programs (Quick View)

Creditor-Agency	Program	Eligibility	Max Term	Unique Conditions
BIR	IPA / RMO 14-2023	Tax deficiency ≥ PHP 10k, w/ financial incapacity	24 months (36 mos if > PHP 1 M)	Requires ¼ down-payment + surety bond or bank guaranty if > PHP 500k.
Pag-IBIG Fund	Housing Loan Restructuring & Penalty Condonation (2023-2026 window)	At least 6 months in arrears	30 yrs or remaining economic life	Penalties 100 % condoned upon plan approval.
SSS	Loan Restructuring Program 3 (LRP-3)	Past-due salary or calamity loans	60 months	0 % interest for first 12 months then 3 % p.a.
GSIS	Restructuring & Repayment Assistance	Members in default on consolidated loans	120 months	Requires active government service.

8. Interest, Penalties & Usury Rules

The legal interest rate set by BSP (MB Res. 796, s. 2013) is 6 % per annum for judgment and forbearance of money.
Parties can stipulate higher rates, but courts may reduce unconscionable rates (e.g., > 24 % p.a. simple; > 48 % p.a. compounded).
Penalties may not be both late-payment charges and interest-on-interest; courts strike them down for iniquitous and unconscionable enrichment (see Spouses Abella v. Spouses Gulles, G.R. 122145, 2002).

9. Documentation Essentials

Debt Computation Sheet (principal, accrued interest, penalties, running total).
Amendment/Novation Agreement (identifies original contract, new terms, effectivity).
Security Documents (real estate mortgage amendment, chattel mortgage, guarantee).
Authority Documents (Board Resolution if corporation; SPA if representative signs).
Post-Dated Checks / Auto-Debit Authority.

10. Consequences of Default Under the New Arrangement

Acceleration: entire balance becomes due immediately.
Revival of Original Penalties: waived charges may be reinstated.
Foreclosure or Replevin (if secured).
Negative Credit Report: “Restructuring – default” flag at CIC for up to 10 years.
Civil or Criminal Action: estafa possible if debtor issued unfunded checks.

11. Creditor Refusal—Your Options

Demand a written denial citing reasons (useful if discriminatory).
File a complaint with BSP-Consumer Protection Dept. (banks), DTI (non-bank lenders), or SEC (financing companies).
Invoke ADR / Mediation under R.A. 9285.
Initiate Insolvency Proceedings (costlier, last resort).

12. Jurisprudential Highlights

Case	G.R. No.	Principle Established
DBP v. CA	118317 (2001)	Court-approved compromise overrides original loan; breach revives foreclosure right.
Spouses Abella v. Spouses Gulles	122145 (2002)	Courts may equitably reduce usurious interest & penalties.
PNB v. CA	126152 (2003)	Collateral may be released once restructuring amortizations equal collateral value despite balance.
China Bank v. Spouses Ching	175381 (2012)	Waiver of penalties in restructuring binding if founded on valuable consideration.

13. Template: Request Letter (excerpt)

[Date]

The Loans & Collections Manager
ABC Bank, 123 Ayala Ave., Makati City

Re: Account No. 123-456-789 (Personal Loan)

Dear Sir/Madam:

I respectfully request that my outstanding obligation be *re-structured into monthly installments* as follows:

 • Outstanding Principal  :  ₱ 350,000.00  
 • Proposed Term          :  24 months (July 2025–June 2027)  
 • Proposed Interest Rate :  Fixed 6 % p.a. on declining balance  
 • Monthly Amortization   :  ₱ 15,545.00  

Justification … [state reason]  
Enclosed are my latest payslips, bank statements, and a sworn Statement of Assets & Liabilities.

I am prepared to issue 24 post-dated checks and sign an amended Promissory Note upon your favorable consideration.

Very truly yours,

[Signature over printed name]
Tax Identification No. / SSS No.

14. FAQs (Quick Answers)

Question	Short Answer
Can interest be frozen?	Yes, by agreement or court approval; otherwise it continues to accrue.
Is notarization required?	Strongly advised; makes the document public and self-authenticating.
Will I need collateral?	Often for sizable debts; unsecured loans may instead require a qualified co-maker.
Does restructuring hurt my credit score?	Yes, but far less than outright default; once fully paid, account is tagged “Closed-Restructured (Paid in full)”.
Can I prepay?	Usually allowed; insist on a no-penalty pre-payment clause.

15. Checklist Before You Sign

☑ Updated, accurate computation of outstanding balance ☑ Realistic payment schedule aligned with your net disposable income ☑ Clear interest and penalty provisions post-restructuring ☑ Written waiver of previous penalties (if any) ☑ Default clause grace period (7-15 days) ☑ Release of lien/collateral upon full payment ☑ Obligation of creditor to update Credit Information Corporation within 30 days

Final Thoughts

Requesting a debt-installment arrangement in the Philippines is anchored on freedom of contract tempered by statutes that protect both debtor and creditor. Success hinges on full disclosure, concrete proof of capacity, and good-faith compliance once a new schedule is granted. When informal talks fail, structured legal remedies—from barangay mediation to court-supervised rehabilitation—ensure that viable debtors are given a second chance while creditors recover value.